The FED announcement last week is seeing the US dollar continue to weaken and a flow of money into equities. Low-interest rates and a commitment to record FED spending will continue to help the US market continue on the current uptrend. All sectors were in the green but Energy and Materials led the move higher.
Locally it is all about reporting for the moment, we are seeing a very mixed reporting season. At this stage, the majority are missing expectations in the face of COVID-19 related issues. Out of 161 companies that have reported, 44.72% have beat expectations and 33.54% have seen EPS growth.
The XJO continues to lag behind US indexes, the AUD moving higher one of the major contributors to this. The Banks which make up around 13% of the XJO are also holding back. This reporting season was an interesting one, but with many companies not issuing forward guidance we need to dig deeper to try and form a view.
Despite a strong finish for the U.S last week and their positive futures this morning, our market is set to have a weak open. At this stage we look to head towards the 6000 level, but before we can test it, we have the longer term uptrend line in play which may help keep our market buoyed.
The disconnect we are seeing is perhaps due to a strong dollar, which soared again overnight to highs we haven’t seen since late 2018. This puts pressure on our miners which have done most of the heavy lifting for our market since the falls. With the U.S dollar devaluing due to Fed stimulus, this isn’t expected to stop. Appreciating commodity prices, like Iron Ore, have helped keep the miners elevated, but hope may need to lie in other sectors for any sort of catch up to the U.S to occur.
It is likely that we need the Financial sector, and therefore the Big Four banks to join the party for this to become a reality. They continue to sit in limbo at the moment as they seem more tied to a struggling economy than other sectors and companies.
Regardless, if the U.S keeps pushing into all time highs, we should go on to break our post fall highs of 6200. Timing this is difficult, but the trend remains strong and therefore we continue to assume bullish to sideward movement.
US shares pushed higher again on Friday, with the S&P 500 index closing at an all-time high for the sixth consecutive trading session. Analysts pointed to the Federal Reserve’s decision to allow inflation beyond the target level should it be necessary to prop up the economy.
Many have interpreted this to mean that cheap easy money is here to stay. US shares were also helped by a further weakening in the US dollar. Every major sector advanced on Friday, with Oil & Gas and Basic Materials stocks doing the heaviest of lifting. Healthcare and Telecoms stocks were largely flat in the main.